Mark J. Walsh is a Second Generation Turtle
October 10, 2005
Futures Magazine
March 1994
Number 3, Page 60
Source: Futures Magazine, March 1994
Photograph by Terry Vitacco
Mark J. Walsh: Long-term view of markets
Mark Walsh soaked up the teaching of Richard J. Dennis while the mega-trader was teaching his "turtles" in the early 1980s. Walsh, then an employee of Michael J. O’Brien, wasn’t a turtle, but attended the Dennis seminars while he served as a floor broker for Dennis. When Dennis launched his infamous Drexel funds, Walsh came off the floor to help.
After the Drexel blow-out in 1988, Walsh joined with Craig Soderquist (a former turtle) and O’Brien, a former partner of Dennis, to run their own fund. Overall, they did well, but after Soderquist’s accidental death in 1990, Walsh and O’Brien went their own ways.
The lessons of Dennis were not lost on this systemized trend-following trader, who since starting his own sole proprietorship on the side in 1985, has had an almost 1,200% compounded rate of return. His best year was 1990, with a 123% return. 1992 was rough: a year-end loss of 26%. Today he trades 40-50 markets around the world, which means some changes to the original system.
"Our system was started when there were just U.S. interest rates," he says. "Now you have all these other interest rates: Sometimes they’re correlated, sometimes they’re not. Right now they’re correlated, and that much interest rate exposure is dangerous. The success of our trading style is diversification…(We) deal with that by (strength/weakness). For instance, now the German bund and (French) notional are weaker than the U.S. bond, so we’re short those and we’re not short U.S. bonds…(we) short the weaker product…If beans are up 10 cents and corn is down five cents, we buy beans. Some people think (to) buy corn because it’s going to catch up with beans. We take the opposite; we’d rather buy the commodity that’s strongest and sell the one that’s weakest…Strength/weakness has been a part of our program all along. Rich Dennis used to tell floor traders if you could look at the board at 10:00, and pick the market that’s the strongest and the market that’s the weakest, you’d probably make money."
Walsh uses a volatility-based system to determine position size. The more volatile the commodity, the smaller the bet.
"The trends that explode are usually not the best trends," he says. "For example, interest rates last Friday (Feb. 4), my inclination is that might not be a good trade because it was such a drastic turnaround and there was so much news. The best markets are the ones that are running their course, like cotton, which kept creeping up and all of a sudden it’s on the front page with 13-year highs, now the volatility starts and there are 180-point swings a day. The easy part of cotton is over; now it’s the hard part."
Walsh’s portfolio stays away from S&Ps. "We don’t feel it trends very well…we need a market that if it closes 1,000 lower, chances are it will open 200 to 300 lower the next day, not go up. Reliable markets, like corn markets, historically have follow-through."
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